est-hit by the housing bust, African-Americans and Latinos constitute a far higher share of the population than they represent in the total population in the U.S., according the Haas Institute for a Fair and Inclusive Society.

Southern California cities with the highest incidence of negative equity

%Underwater; %Below peak home price; % of population either black or Latino

When John Bulgin bought his house in a Fontana neighborhood eight years ago, he didn’t think he would find himself living with his mortgage worth more than the house.

But despite reports of an improving housing market around the country, that’s the situation he and 9.8 million households in the U.S. find themselves in: He bought his home for around $450,000, and the last time he checked, it was valued at about $270,000.

“We refinanced, so the mortgage is a lot less than it used to be, but most all of these houses here, I’m sure, are upside down,” Bulgin said. “We bought the wrong house at the wrong time.”

Fontana is among a list of cities and areas in the United States hardest hit by a housing boom and bust that, according to a new report authored by researchers from top universities, has hit Latinos and African-Americans particularly hard. So much so, in fact, that “many may never recover,” they conclude.

The list includes several major cities in the Inland Empire.

The Haas Institute for a Fair and Inclusive Society listed San Bernardino, Fontana, Rialto and Victorville as cities with significant numbers of homeowners suffering from negative equity — that is, they’re paying more on their mortgage than the market value of their homes.

“There’s a lot of happy talk about rising housing prices,” said Peter Dreier, a professor of politics and chair of the urban and environmental policy department at Occidental College in Eagle Rock.

Dreier said the report disputes the theory that rising home prices in an improving economy will rescue people from the recession and from the epidemic of underwater mortgages around the country.

“It is true that the number of homeowners who are underwater has declined across the country,” Dreier said. “But there are still many parts of the country where the recovery is bypassing entire cities and many neighborhoods, and there are so many underwater homeowners that the housing market alone will not rescue them. The Inland Empire is one of those areas.”

The report uses data from the online real estate database Zillow. The Riverside-San Bernardino County metropolitan area, according to Dreier, is number 11 on the report’s list of 15 metro areas with the highest incidence of negative equity with 24 percent of the homes underwater, according to the report. Higher on the list of cities is Victorville at number 18 with 40 percent of homes underwater and San Bernardino follows at number 35 on the list with 33 percent of homes underwater.

Rialto comes in at number 84 with 25 percent of homes underwater, followed by Fontana at number 91 with 24 percent of homes underwater, according to the report.

“What they did was they targeted subprime loans to mostly African-American and Latino areas, often to families who were eligible for

conventional loans,” Dreier said. “These banks (convinced) borrowers they were ineligible for conventional loans and instead steered them into risky subprime loans with often adjustable-rate mortgages, where the interest rates go up after a couple of years or where the fees were exorbitant.”

The key recommendation from the report is that principal reduction should be undertaken by loan-holders, such as banks, government lenders such as Fannie Mae and Freddie Mac, and investors.

If loan holders are unwilling or unable to reduce the principal on underwater mortgages to current market values, the authors recommend the holders allow these loans to be purchased by publicly-owned or nonprofit entities that are willing to restructure them with fair and affordable terms.

Lastly, the report recommends municipalities should use all options to facilitate the goal of resetting mortgages to current market values, including the use of eminent domain to acquire mortgages in order to reduce the principal for underwater homeowners.

The last approach had been entertained by San Bernarindo County through a joint-powers authority, called the Homeownership Protection Program, which includes the county and the cities of Fontana and Ontario, when it allowed the idea to be discussed at public meetings.

The plan, presented in 2012 by a San Francisco investment firm, Mortgage Resolution Partners, drew heavy opposition from the real estate and mortgage industry.

Greg Devereaux, chief executive officer of both the county and the JPA, said the agency dismissed the proposal in early 2013 because of the risk it introduced into the market, which could not be quantified.

Paul Herrera, government affairs director for the Inland Valley Association of Realtors, said the approach using eminent domain is a bad idea.

“We looked at the eminient domain idea and it’s creative, but the market has been sorting itself out and it wasn’t in need of some kind of massive intervention that set new precendent about the power of local government to essentially take stuff,” Herrera said. “Our concern was that it endangers mortage markets and raises interest rates. If you make mortgages risker to the people who provide money, that raises costs. Borrowers raise interest rates. If you raise the cost of borrowing, then you put downward pressure on property values.”

“If I were to underwrite a mortgage in the city of San Bernardino, what certainty do I have that the county wouldn’t come in and eminent domain the mortgage and take my property,” said Michael McKinney, chief of staff to San Bernardino Mayor Carey Davis.

McKinney had been a lobbyist on behalf of coalitions of private finance and mortgage companies working against the idea of using eminent domain as a solution to fixing the problem of underwater homes in the region, at the time the matter was being discussed a few years ago.

He said the city of San Bernardino is reviewing all of its ordinances dealing with housing, and the mayor has put together an advisory group looking into better ways of improving the housing stock in the city, through more robust inspection ordinances.

In addition, he said the city is working with homeowners to reduce liens in an effort to help underwater homeowners.

Still, Dreier said San Bernardino is a city where the approach could make a big difference.

“When the city council talked about doing this a year ago, the lobbyists from Wall Street and Securities companies sweept into San Bernardino and threatened lawsuits,” he said.

Bulgin says he thinks it would be a good idea.

“If someone can come in and do eminent domain and now my house is not upside down, that would be a great idea,” Bulgin said. “Whether or not it’s practical or legal, I don’t know.”